Tuesday, June 3, 2014

Arbitration Odds & Ends

Gloster v. Sonic Automotive, No. A137081 (D1d1 Apr. 23, 2014)

In this appeal of a denial of a motion to compel arbitration, the court resolves a key procedural issue regarding the parties’ capacity to contractually define the scope of arbitrability, declines to find a waiver, notwithstanding the moving party’s year-long delay before moving to compel and, perhaps unwittingly, widens a split of authority concerning third party rights to invoke arbitration clauses. 

First, the decision lets parties to contract around Code of Civil Procedure § 1281.2(c). (Section 1281.2(c) affords the court discretion to deny a petition to compel if the arbitration could result in rulings inconsistent with the results of pending litigation with non-signatory third parties.) Parties can accomplish this in one of two ways. First, they can elect to have the Federal Arbitration Act govern arbitrability. Since the FAA doesn’t have a provision equivalent to § 1281.2(c), the procedure would not apply in such a case even were the question litigated in state court. Further, even in a case applying California arbitrability law, the parties can, as they did here, specifically agree that notwithstanding § 1281.2(c), the court will not be permitted to refuse to enforce the agreement or stay an arbitration due to the pendency of third party claims.

Second, the court finds that although the party moving to compel arbitration here waited a year to file motion to compel, it did not waive its right to demand arbitration. The moving party did nothing in the litigation that was inconsistent with arbitrating its case. The time was largely taken up waiting for the court to decide a co-defendant’s demurrer. Since that the presence of the third party implicated the § 1281.2(c) issue, the delay was understandable. Particularly so, given that during the delay, the moving party did not serve any discovery, file a demurrer of its own, or seek to litigate any issue other than arbitrability. Because the moving party did not avail itself of any litigation practice that might be inconsistent with its intent to arbitrate, there was no waiver despite the significant lapse of time.

And in a third part of the opinion that the court declines to publish, the court decides that the non-signatory third party—whose demurrer was ultimately denied—could not compel plaintiff to arbitrate. The complaint was premised on the theory that that the third party was an agent of the signatory co-defendant. The third party argued that this gave it standing to invoke the arbitration clause. But the court, relying on Barsegian v. Kessler & Kessler, 215 Cal. App. 4th 446 (2013), holds that boilerplate agency allegations against a non-signatory third party are insufficient to give that third party the right to enforce its alleged principal’s agreement to arbitrate. Interestingly, neither this case nor Barsegian addresses Dryer v. Los Angeles Rams, 40 Cal. 3d 406, 418 (1985), which holds that when a “complaint alleges [that] defendants, though not signatories, were acting as agents for the [signatory], then they are entitled to the benefit of the arbitration provisions,” or Rowe v. Exline, 153 Cal. App. 4th 1276 (2007), which applies Dyer to permit third parties sued as alter egos of a party to enforce the arbitration agreement. So, as happens all too often, there appears to be an unrecognized spit in authority on the issue.

Reversed in part.

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